Did you know that you can get the lender to pay you when you get your loan? Or that you can pay a fee up front to get the very lowest rate? This movie explains how that works.
Once your loan officer submits your loan package for approval, it goes through a mysterious process called “underwriting.” When you know what that process is, though, you’ll see that it really is quite simple. This movie explains how it works.
Any Realtor® will tell you that you MUST have a solid preapproval letter from a lender before you make an offer. The process is not as difficult as you might think—but it is essential for success. Here’s what’s involved in getting preapproved.
After months months of pre-production, taping and post-production, we are FINALLY ready to begin releasing our consumer-empowering video production, Homebuying 101. These short movies will give you essential knowledge about the homebuying and mortgage process. They’re short (most are less than 3 minutes) and easy to understand. Our goal in producing this educational series has been to give you, the consumer, a knowledge base that will save you money, whether you are a first-time buyer, an experienced homeowner buying your fifth home, or someone considering a refinance.
These are the first two movies of the 18 video program. Look for the rest of them in coming weeks.
They’re talking about me again! I was used as a source in a MarketWatch story, “New rules give house buyers more time to review documents.”Reporter Daniel Goldstein interviewed me for his story about the new lending disclosures that all lenders will be required to use beginning October 3. Read the story here: New Rules Give House Buyers More Time to Review Documents
The lie goes like this:
“Mortgage rates are good today, but nobody can qualify anymore.”
“The banks are only lending money to people with perfect credit.”
“If you want to buy a house, you’d better save up at least a 20% down payment so you can have some ‘skin in the game.’”
Each of these three statements is utterly false—but millions of people believe them, because they hear the them over and over on TV, radio and in the press.
It’s time to put a stop to this lie, because it is harming the millions of people who believe it—and act on it.
A client of mine, a Marine Corps veteran, brought this home to me recently. He had been through a foreclosure several years previously, but that event was far enough in the past that he would qualify for a new mortgage.
“My credit score took a big hit with the foreclosure,” he told me, “but we’ve gotten it up around 740 now.” I ran his credit. There were some older, incorrect entries showing, and his score was 698—still acceptable to any lender.
His face fell when I gave him the news. He got up to leave. “I’m sorry I wasted your time,” he said sadly. “I thought it was a lot better.”
“Hang on,” I said. “You’re completely qualified for the loan you want.” He shook his head. He seemed not to hear me.
“I really thought my score was better than that. I guess we’ll just have to wait.” It took me twenty minutes to convince him that he would be able to qualify for a new mortgage—even with a non-perfect credit score. We have issued his preapproval letter and he and his wife have been making offers. He will be a homeowner soon.
This mortgage lie is so pervasive that would-be homeowners have come to believe it. Because they are convinced their application will be rejected—an unappealing prospect—they don’t even make the attempt.
It’s true that getting a mortgage is more difficult today than it has been in the past. Borrowers must document their income and assets thoroughly. Large deposits have to be explained and paper-trailed. There are more disclosures and regulatory delays in the process today than ever before. But I’ll say this as plainly as I can: if you have a credit score of 620 or higher, a down payment of at least 3% (even less in some cases) and an ability to document your income and assets, you can become a homeowner.
Since home ownership is still integral to The American Dream, doesn’t it make sense to see for yourself whether what I say is true for you?
photo credit: I’m not a liar! via photopin (license)
I spend a fair amount of time speaking with journalists who are working on stories about the housing and mortgage industry. I like to help out, and it does give one a bit of an ego boost to see your name in print as an authority.
Recently, I spoke to Geoff Williams, a reporter for U.S. News and World Report. His angle was about buying a home without flawless credit. He wanted to explore the avenues available to those would-be home buyers who were actually human, with a few blemishes on their credit reports. “How good does a buyer’s credit actually have to be to get a loan?” he wanted to know.
That prompted me to say this:
“There has been a false narrative circulating ever since the meltdown of 2008 – that even though interest rates are great, almost nobody can qualify, since the banks pick only the most squeaky-clean borrowers. This is so far from the truth as to be almost ludicrous, except that it becomes a sort of self-fulfilling prophecy, where imperfect would-be buyers stay out of the market for fear of rejection.”
I was happy to see that he printed that quote in its entirety.
I’ll be speaking and writing about this harmful untruth a lot more in the future. Stay tuned.
I came across an article recently in one of the mortgage industry trade rags: “Republicans Hammer Castro over FHA Premium Reduction.”
A little backstory: FHA is a federally insured loan program that requires a small down payment (currently 3.5%). It has helped million of people buy homes since its inception in 1934. The small down payment means more risk for the lender, so the buyer pays mortgage insurance to limit the lender’s risk. That insurance consists of an initial payment of 1.75% and, until recently, a monthly premium of 1.35%. The initial payment is typically added to the loan, so it does not come out of the borrower’s pocket.
With the crash of 2008, many people lost their homes to foreclosure, and there were billions of dollars of claims. The claims involving FHA loans depleted the MI fund below its congressionally mandated level of 2%. FHA’s response to this problem has been to raise mortgage insurance premiums to their present high levels to replenish the insurance pool. In doing this, they lost a great deal of market share to conventional loans, whose mortgage insurance is often less costly than FHA’s.
HUD Secretary Julián Castro pushed through a reduction of monthly MI to 0.85%, a half percent lower than the previous 1.35%. Surprise: FHA originations increased.
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said the FHA needed to wait until its reserve fund reached its statutory minimum of 2% before enacting any cuts. “This cannot be allowed to stand!” he thundered, perhaps pounding the lectern and shaking the C-SPAN cameras. His colleague, Rep. Scott Garrett (R-N.J) piled on, saying that FHA loans have “predatory characteristics” (low down payments). The reduction in premiums would “entice people” to take these kinds of loans to save “$25-$50.”
Wow. Just…wow. Doing the math, that 0.50% reduction in premium will save a borrower with a $183,000 loan (the nationwide average) over $76.00 per month.
“Don’t you care about these people?” Rep. Garrett co-thundered. “Are you so inclined to write more loans that you are just trying to entice them for $20 or $30 to get into a house that they can’t afford?” (This from a man who earns $174,000 a year, plus expenses, perks and benefits).
Secretary Castro replied, “I assume intelligence in the American people.” (Slow clap)
This exchange demonstrates a good part of what has been wrong with our housing finance market. First, many of the policies have been set by very affluent people—typically wealthy older white men—who have no understanding of how people buy and finance homes. Raising the cost of mortgage insurance, for example, caused FHA mortgages to be much less attractive to borrowers, so FHA lost market share to conventional mortgages with private mortgage insurance. This is part of what slowed the replenishment of the insurance pool. According to Secretary Castro, FHA is now on track to have the pool fully compliant within two years.
Second, judging by the comments of these two politicians, they have no understanding of how a lender actually underwrites and approves a mortgage. They seem to believe that reducing the cost of a mortgage will somehow cause it to become a sort of attractive nuisance to attract irresponsible borrowers who will default on their obligation.
It appears to me that this recent reduction in the FHA insurance premium is a glimmer of hope in housing policy. Rather than shifting blame for the recent mortgage meltdown from the investment banks (Goldman Sachs et al), who created the toxic loan products, to hapless borrowers, there seems to be at least some movement towards a more common-sense housing policy—at least as far as FHA is concerned.
I’m going to call that a good start.
Earlier this week, Geoff Williams, a reporter for U.S. New and World Report, asked me for my opinion about current credit standards set by mortgage lenders, and whether someone with less-than-stellar credit could actually get a loan to buy a home. Here’s what I told him:
There has been a false narrative circulating ever since the meltdown of 2008 – that even though interest rates are great, almost nobody can qualify, since the banks pick only the most squeaky-clean borrowers,” says Joe Parsons, a managing partner at PFS Funding, a mortgage lender in Dublin, California. “This is so far from the truth as to be almost ludicrous, except that it becomes a sort of self-fulfilling prophecy, where imperfect would-be buyers stay out of the market for fear of rejection.
This “false narrative” has been a sore point with me for years, since it inhibits so many people even from making the attempt to buy a home. I’m happy that Geoff took on this issue in a national magazine. Expect more articles on this topic from me in the coming months.
You can find Geoff’s story, “How to Get a Home Loan With Less-Than-Stellar Credit,” at http://money.usnews.com/money/personal-finance/articles/2015/01/30/how-to-get-a-home-loan-with-less-than-stellar-credit
The Consumer Financial Protection Bureau (CFPB), has recently released a suite of tools for consumers who are thinking about buying a home. The concept is good; in my 25 years as a mortgage lender, I have spent a great deal of time educating the public about basic financial principles.
Here’s where CFPB has missed the mark: one of the tools they provide is called “Check interest rates for your situation.” CFPB claims, “Our data comes from actual lenders and is updated every day.” The user enters a loan amount, down payment, state and credit score and will see a range of interest rates and the number of lenders in the survey offering those rates.
This sounds like a good idea, but it misses the mark in a couple of important areas. The data CFPB delivers with their well-intentioned site can be misleading.
First, the rates generated are (I presume) APRs, which are very different from the note rate. This is because discount points, paid up front to reduce the interest rate, are part of the APR calculation. Here’s what I mean:
A $400,000 mortgage at 3.625% and no discount points will carry an APR of around 3.689%.
The borrower could get the same mortgage with an APR of 3.309% (note rate 3.25%)—but they’d pay 2.8% of the loan amount to get that rate. CFPB’s model doesn’t consider this.
They also disregard the potential cost of mortgage insurance. A buyer with a credit score of 740 and a down payment of 10% will pay mortgage insurance of .44%. That would amount to $132 a month. A buyer with a 680 score would pay $171 for insurance on the same loan.
Furthermore, they don’t take into account many other factors that affect interest rate: is the loan for a purchase or refinance? Is the borrower taking cash out? Will they have an impound account? All will affect the cost of the loan.
CFPB suggests that the consumer should negotiate with three lenders or more, getting Good Faith Estimates from each one, then using those documents as a negotiating tool. There are two problems with this: first, the GFE is not a useful consumer document. It does not itemize the actual costs of the loan paid by the borrower. Second, under the current Dodd/Frank regulations, lenders cannot do ad-hoc price reductions for individual borrowers. This is true for brokers and direct lenders as well.
Finally, the comparison tool (although it is a good start) disregards other costs and fees that can change from one lender to the next. Lenders with the lowest price (like on-line call-center mortgage brokers) often have other costs and fees that are not reflected in the GFE.
What is useful in CFPB’s mortgage tool is the credit score slider. All lenders use “risk-based pricing” today. This means that a borrower with a lower credit score will pay a higher rate than one with a higher score. We have seen many instances where raising a borrower’s FICO score by just 5 points has saved literally thousands of dollars on their loan.
In fairness, the mortgage tool is a Beta version. This means they recognize it as a work in progress. Still, with the complexity of the mortgage process, the fact remains that the best way to decide on the best mortgage choice for you is an experienced, trusted mortgage advisor.
I happen to know one of those guys.